Somewhere around one-third of the couples that I meet with for estate planning are involved in second marriages. In most cases, neither spouse has considered the unique planning issues that come about in second marriages.
In first marriages, both spouses usually have the same estate planning goals. They want to take care of the surviving spouse for as long as he or she lives, then leave whatever is left to their children. Both spouses usually own most of their assets jointly. At the death of the first spouse, almost everything usually goes to the surviving spouse. Then when the second spouse dies the children inherit what is left.
But second marriages are different, especially when one or both spouses have children from a prior marriage. It is even more complicated when there are children from a prior marriage and children from this marriage. In many second marriages, both spouses bring assets into the marriage. Allocating distributions between the surviving spouse and children from the first marriage may be difficult.
More than likely, the estate planning methods relied upon in the first marriage will not work for a second marriage. Titling assets jointly, naming the spouse as beneficiary of retirement accounts and leaving everything to the surviving spouse can have the effect of disinheriting your children. Although both spouses may promise to leave part of his or her estate to the other spouse’s children, there are several issues to consider before using this type of planning.
If each spouse has considerable assets, it may be wise keep the assets and estate planning separate. If one spouse has considerably fewer assets than the other, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the “wealthier” spouse.
Naming a trust as beneficiary for life insurance policies and retirement plans is often a good choice for second marriages. This allows the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control of what happens to the rest of the proceeds. Keeping the assets in a trust will also protect them from irresponsible spending, creditors, divorce and remarriage.
Couples in second marriages should also consider including planning for disability and long-term care. If one spouse becomes ill and government assistance is needed to pay for long-term care, the combined assets of the couple will be considered “available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the children of the healthy spouse.
Estate planning is important for everyone. But the risks of not having an estate plan are much higher for couples in second marriages.